Ray Dalio spoke with Steve Forbes at the Forbes Iconoclast Summit about how he views the changing world order.
Daniel Paik for Forbes
Billionaire Ray Dalio, the retired founder of hedge fund Bridgewater Associates, attributes much of his investing success to his study of history, and he sees concerning trends that could spell the decline of the American-led world order that in his view has been in place since the end of World War II.
At Monday’s Forbes Iconoclast Summit in New York, Dalio spoke with Forbes chairman and editor-in-chief Steve Forbes about his essay published on LinkedIn in April that the U.S. and China are “on the brink of war and are beyond the ability to talk.” The 73-year-old said he worries about the possibility of an economic war and a physical conflict over Taiwanese independence.
“The relative position of the United States has declined, and the relative situation in China has risen. I am not saying the Chinese are going to win over the Americans, but they’re going to be comparable powers in a conflict, and those conflicts are multi-dimensional,” said Dalio. “Talking is almost counterproductive because there’s so much blaming and untangling how we got here.”
China’s rise as a world power was one of three major factors that Dalio views as threats to the U.S. today—the others are “enormous” and growing amounts of debt and internal conflict over wealth inequality that has spurred a rise of populism.
“If you have a financial crisis at the same time as you have large wealth gaps, and therefore big disagreements, you are likely to have populism,” said Dalio, noting that a populist is an individual who does not accept defeat. “Those two things coming together are an explosive combination.”
Dalio opened his presentation with his recollection of the Sunday night announcement by President Richard Nixon in August 1971 that the U.S. would default on an obligation to redeem Treasury debt held by foreign governments for gold. Then a clerk at the New York Stock Exchange, Dalio had expected chaos and a stock market crash the following Monday, but he was surprised that stocks instead had their best day in decades. His interest in history led him to discover that the same thing had effectively occurred when President Franklin D. Roosevelt suspended the gold standard in a 1933 radio proclamation.
He committed to studying historical cycles, and he credits that research with helping Bridgewater’s flagship fund post positive returns during the financial crisis in 2008 and 2009, when he was wary of the dangers of high debt levels and interest rates at zero ahead of the collapse.
“Things that surprised me often only surprised me because they didn’t happen in my lifetime, but they happened many times in history,” Dalio said. “By studying the 1920s to 1945 period, I understood the nature of the 2008 financial crisis.”
Now, Dalio is warning of an even more significant upheaval in the global power structure. Since the end of World War II, he says, the U.S. has been the world’s dominant player, where most of the influential global collectives that have formed since then like the United Nations and International Monetary Fund are headquartered. But that isn’t destined to last forever, and with the U.S. indebted to many foreign bondholders and dealing with untenable wealth inequality, he worries about another seismic shift.
“In 1945, we began a new world order,” Dalio says. “There’s always some kind of conflict at the beginning, and the system changes. New folks are in charge, and they set the rules.”
